Coronavirus Preparedness and Market Volatility

While we are hoping for the best with the current coronavirus pandemic, it is always prudent to plan and prepare for the worst. Below are some quick but important bullet points on how Williams Financial, LLC has prepared for an emergency like this and how we continue to plan and prepare today.

What we are doing

Williams Financial has had a business continuity plan since 2005, when we opened our doors. This plan is reviewed and updated annually, and we are well prepared if we need to initiate it today or any day.
If a change in work location is needed, our business continuity plan calls for most (if not all) of our staff to move between our three office locations first and, in an emergency, staff will work remotely from their homes. This is something we practice often and it will not disrupt our daily client service operations or portfolio trading.
Our phones are voice-over-internet-protocol (VoIP) which means we can use the system anywhere the internet is available. We do not anticipate any disruption in this area at all. You may call us anytime at 866-986-4469.
Our major custodian, Charles Schwab, has a detailed, complex, and multi-layered business continuity plan that we, as an independent advisor, review every year. They have demonstrated good communication throughout this pandemic.
We have strong video conferencing software and all staff are trained to use it and teach our clients how to use it. If the pandemic continues to grow, we anticipate holding client meetings by video conferencing.
During an emergency all wire transfers require my permission to protect clients against cyber criminals trying to take advantage of the situation.
What you can do to help

Our team met this morning and decided in order to do our part to slow the spread of this pandemic, we will hold all client meetings either by phone or video conferencing until April 30, 2020. Clients who are not comfortable with either of these methods may decide to postpone their annual meeting until the pandemic fades.
In addition, we are asking clients to call ahead before coming to our office locations. We would prefer that clients limit their visits to our office until April 30, 2020, following the CDC’s recommendations. If clients must drop off paperwork, our Bennington and Leominster offices have a locked drop box. Please communicate with your financial planner if you’ve used the box.
Clients should use email or phone as much as possible to communicate with us during the outbreak.
Complete a Trusted Contact form. You can give us and Schwab permission to communicate to another person regarding your affairs if we are not able to contact you after a reasonable period. This may be done by logging into Schwab Alliance, scrolling over Services and selecting Trusted Contact under My Profile. If you are not setup to use Schwab Alliance, a Trusted Contact form may be completed by calling the office.

Market Volatility

Despite a recovery day on Tuesday, it now appears that the investment markets are in full panic mode, the result of the World Health Organization declaring the COVID-19 virus to be a global pandemic. Traders on Wall Street are selling at virtually any price, which is causing the markets to drop into bear market territory. The long bull run that started in March 2009, and set many records along the way, is now officially over.

It is almost impossible to keep a rational perspective in the middle of a herd that is stampeding toward the exits, and this particular stampede can fairly be described as one of the worst in market history. It was noted that this is the fastest bear market ever; that is, the fastest that the U.S. stock market has experienced a decline of 20% or more, going back to 1915.

The COVID-19 pandemic (as it is now known) should first be considered a health issue, and everybody should do what they can to protect themselves and their families from the spread of the disease. It should go without saying that your health is more important than your portfolio.

But once health precautions are taken, it is appropriate to address the potential for losses and how best to navigate the market conditions. There are news reports that the U.S. government will propose a payroll tax cut, and also bailouts of key publicly traded companies in the travel and entertainment industry. The Federal Reserve Board has cut a key interest rate by half a percent—a dramatic move that seems not to have had more than a one-day impact on market sentiment.

Historically, bear markets have been less impactful than their bull market counterparts. Of course, you could argue that a global pandemic is different from a housing market crash. Research analysts at Goldman Sachs looked back at “event-driven” bear markets; that is, market declines that were not driven by an economic recession, but instead were triggered by things like war, oil price shocks, or an emerging-market crisis. They found that the average event-driven bear market resulted in a 29% decline—on average. The report notes that we have never before entered a bear market due to a viral outbreak but, in the past, bear markets triggered by “exogenous shocks” have recovered their previous levels within 15 months.

There is some good news for many investment portfolios: during the downturn, 20-year Treasury bonds have gained 24% in value, as bond yields have fallen to record lows. The 10-year Treasury yield experienced its biggest weekly drop since December 2008. This performance, so directly counter to stock movements, explains why it is so necessary to hold diverse investments in a portfolio.

The harder conversation is about market timing. Most people understand that it is impossible to time the market without a crystal ball. But this is easily forgotten when the daily headlines announce that your net worth is falling by 4–7% in a single day, when the stock portion of your portfolio has fallen by 20% in record time. The natural question is: should I get out now and avoid more of the same?

There is only one rational answer to this question: it has never been a good idea to sell when everybody else is selling, just as it has never been a winning strategy to buy stocks when everybody else is wildly buying. The best strategy has, in the past, been to ride out the downturn and experience the subsequent upturn—which may come tomorrow, next week, next month, or next year.

Make no mistake: bear markets like the one we have just entered pose a real danger to your future financial health. There is a real danger in selling at the bottom and then missing out on the recovery and for this reason we are staying the course except for a small adjustment to our portfolio strategies.

First, we will raise a little cash, 2–3% only. Second, we will reallocate from emerging markets to fixed income, 2–6%. Third, we are exchanging our US Broad Markets holding with the S&P 500. This will give us a little less risk and a slightly higher dividend yield which will be important moving forward as bond yields have been cut significantly. Additionally, this will give a great tax advantage for most clients to lock in a loss while remaining exposed to the market for the potential upswings.

We remain ever diligent working on your behalf throughout this challenging time. As always, please feel free to reach out to your financial planner or myself if you have any questions or concerns.

Best and stay healthy!

JJ Williams